NEW YORK, Feb 18 (Reuters) - U.S. cotton futures soared in
the overnight session to an all-time high at $2.1102 cents in
the March contract, then slid by the 7 cent downside limit in
Friday's mid-morning where prices stayed up to the close.

A short while later, ICE Futures U.S. suspended trading in
cotton options when they fell by 14 cents, twice the limit for
futures prices, paralyzing the market for a second day.

After a flood of short cover buying, that had pushed prices
to successive record levels, had run its course any remaining
positions at the highs fled for the exits, brokers said.

'Once the last short was covered, everyone rushed for the
door at the same time. Nothing but a vacuum below. Buyers
disappeared rather than try to catch a falling knife,' said
Mike Stevens, an independent analyst in Mandeville, Louisiana.

All but one contract ended down by the 7 cent limit, with
March cotton on ICE Futures U.S. finishing at $1.9702
cents, a 3.43 percent decline, after setting a new record high
overnight at $2.1102 a lb.

Benchmark May cotton also dropped 7 cents, or 3.47
percent, to close at the downside limit of $1.9493. It set a
high at $2.0893 overnight.

Volume was robust in both contracts, with 10,384 March lots
and 18,145 May lots changing hands.

Since Tuesday, a rush by mills to price cotton that was
bought on call last year basis the March contract drove futures
prices to ever higher record levels.

But a dearth of available U.S. cotton meant prices have
been on the rise since the beginning of the year.

Mills holding out for lower prices waited too long to cover
short positions in March futures, taken out as a hedge against
their unpriced cash contracts.

Going on tradition, too many players waited until the last
minute to get out of their short positions, hoping prices would
ease. Instead, a lack of sellers sent prices soaring.

As signs emerged the last short position was covered, all
other players scrambled to get out as fast as they could until
they had pushed prices to their downside trading limit.

'Once the short positions were covered, the air came out of
the balloon. You could sense that coming. The old crop market
extended some kindness to some shorts in the market by filling
them at limit up,' said Keith Brown of Keith Brown and Co. in
Moultrie, Georgia.

He explained while prices had been bid to their upside
limit, not letting any shorts out of their positions, some
sellers came into the market and sold at the limit up price,
easing the price pressures at the highs.

Brown said stories circulated of cotton shooting to $3 a lb
by Tuesday, indicating the frenzy had pretty much exhausted
itself.

'When you start hearing that kind of stuff, it's over. It's
just too crazy,' said Brown.

With markets shut on Monday for U.S. President's Day, next
Tuesday is first notice day and March cotton notices must be
submitted by 5 p.m. EST (2200 GMT) on Friday.

Though more selling is expected on Tuesday when trading
resumes, participants are in a wait-and-see mode.

'On Tuesday, you would think there would be more selling.
But then again, today everyone thought we were going to be lock
limit up again and look where we are,' said Brown.

With global shortages of cotton supplies continuing,
analysts said, they see more market volatility down the road.